Sunday, August 10, 2008

NOTE: Russia has bombed apartment buildings in Georgia proper well outside the contested region of South Ossetia, killing hundreds of civilians by its own admission. We have the details, including horrifying photographs, on Wordpress.

NOTE: See the NOTE in the Friday Contents page for an explanation of our recent technical issues which may have blocked your browser and how we are resolving them.

Photos from yet another public protest action by the heroic patriots of Oborona, this one just a couple of weeks ago. The activists protested for democracy in Belarus outside the barbaric nation's embassy in Moscow. They were responding to the latest round of draconian crackdowns by the Belarussian dictator Lukashenko after an explosion in the capital city of Minsk on July 4th, which Lukashenko shamelessly used as a pretext. They carried copies of signs that protesters in Belarus were jailed for carrying.

The Russian government’s failure to enforce its own laws and to provide basic community services in the modernized sector is to blame for efforts by non-Russian groups there to revive pre-modern traditions like shariat, according to a leading Moscow commentator. Such groups in the current political environment have few chances of influencing the behavior of the Russian government, Sobkorr.ru observer Yuri Gladysh says, and consequently, they are taking the only steps available to them to protect themselves and their families from increasing official arbitrariness.And the Russian authorities will have only themselves to blame if they do not change course and then must confront communities far less adaptable to Russian-style modernization than they were only a few years ago and far more ready to listen to those, often radical in their politics, who speak within that alternative, pre-modern tradition.

The occasion for Gladysh’s observations was an interview in which former Ingush president Ruslan Aushev suggested that young people in his republic no longer trusted officials secular or religious and consequently were turning to pre-modern forms like the shariat as their last means of defense. Secular Russian laws, Gladysh continues, “today are powerless not only against corruption but also against rise of unbridled illegally as a whole” which is “taking over the country.” Citizens, he writes, “are defenseless both before the criminal world and also before greedy bureaucrats and inactive ‘law enforcement officers.’'"

“It is thus no surprise that many Russian citizens, having lost confidence in and thus turned aside from formal laws, are paying attention to their experience of their ancestors. This concerns, by the way, not only Muslims,” although their shift to the shariat has attracted the most and the most negative commentaries in the Russian media. Residents of traditionally Cossack regions are also making use of traditional rule-making arrangements, the Sobkorr.ru commentator suggests, particularly with regard to maintaining public order and providing moral instruction for the young, areas where many Cossacks believe the contemporary Russian state has failed to live up to its responsibilities. And even in the country’s central and predominantly ethnic Russian regions, Gladysh points out, there are regular conventions of meetings to apply the judicial decisions of Yaroslav the Wise “and even the norms of behavior of the times of pagan Rus’,” an archaic revival that is something more than an ethnographic curiosity.

Consequently, he writes, “there is nothing surprising at all in the turning of residents of Muslim regions the shariat,” but there are some very serious consequences of such actions: They divide the citizens of the Russian Federation far more deeply than do ethnic differences, and they make movements from one part of the country to another far more problematic. But there is another and more immediate consequence that all Russians must face up to: many of their fellow citizens are turning to alternative systems of social organization not because they find the latter so inherently attractive but because they have concluded that the Russian government as currently constituted is inherently and irretrievably worse.Goble continues:

Moscow and its representatives are backing “traditional North Caucasus Islam” in the mistaken belief that this form of Islam is both tolerant and apolitical, when it fact it is not only “aggressive” but also itself “radical” in “practically all” republics of the North Caucasus, according to leading Russian academic specialist. In a two-part article posted on a Moscow State University site, Igor Dobayev, a professor at the Academy of Sciences Southern Academic Center in Rostov, argues that this Russian mistake carries with it “especially great” dangers in Daghestan where Sufi structures play an important role and in part control “’official Islam.’”

Indeed, he suggests, “in the post-Soviet period during the process of the struggle with radical Islam (‘Wahhabism’), traditional Islam [as embodied in the official structures} has become so politicized that this can lead to the total Islamization of the republic in the near term”. Dobayev begins his article by describing the complexity of religious life in Daghestan, a complexity that calls into question most if not all of the categories that Moscow academic specialists, religious leaders and government officials use when they attempt to describe what is going on and what the Russian state should do.

Religiosity varies by region, with the southern parts of Daghestan less religious than other segments of the republic, by residence, with rural people far more attached to the faith than urban ones, and by ethnicity, with Avars, Dargins, and Kumyks far more religious than Lezgins, Laks, Tabasarans and Rutuls. These differences in term affect the 2240 religious organizations (overwhelmingly Sunni mosques) that exist in Daghestan, even though almost all of them are subordinate to the Muslim Spiritual Directorate (MSD) of Daghestan that supervises more than 2500 religious leaders and that has been subordinate to Mufti Akhmad Abdulayev since 1998.

The various trends have both their own domestically produced magazines and Internet sites and also rely on an enormous quantity of imported Islamic literature, much of which is difficult to categorize according to the traditional, fundamentalist, and Sufi categories that Russian officials insist on employing. But more important than anything else among Muslims in Daghestan, Dobayev argues, are the Sufi orders. At present there are 19 sheikhs from the Naqshbandiya, Shaziliya, and Qadiriya orders, whose adepts include as many as 55,000 people, many of whom are within the government and take orders from their sheikhs.

The sheikhs, the Rostov scholar says, “are ever more insistently penetrating the political and economic structures of north Caucasus society.” And in Daghestan at present, he continues, “certain ministers and serious entrepreneurs are themselves murids [adepts] of the sheikhs” who can secure virtually any decision they deem necessary. The sheikhs in Daghestan are so strong, he argues, that many Sufi leaders are shifting the center of their activities to Moscow, Siberia, Stavropol and Krasnodar, where their activities among Daghestani diasporas are both spreading the Daghestani arrangements and enhancing the influence of its followers among Muslims across the Russian Federation. The interpenetration of traditionalist and Sufi Islam is so great that it is difficult if not impossible to separate them, at least in Daghestan, but together, their “main opponent and antagonist” includes those normally called “fundamentalists” who seek a return to the time of the Prophet.

These groups were radicalized during the course of the second Chechen war, Dobayev suggests, and now operate in underground networks. Their youth organizations – the so-called “’young jamaats’” – are especially active with many of their members having received training abroad.The Russian government has adopted “an extremely tough approach” toward these groups, but this has not worked in a double sense. On the one hand, because they are better trained than their Islamic establishment counterparts, they thus are spreading their message more generally.

And on the other, by its obsessive focus on the fundamentalists and its assumption that the traditionalist Muslims are in its corner, Moscow and its local backers are ignoring the way in which Sufism is changing the traditionalist Muslims in ways that are already making them a more formidable challenge than the fundamentalists could ever pose. But in his detailed essay, Dobayev may have ignored what is the most significant aspect of this situation: To be sure, the Russian government and its supporters may have made a bad bet but only because in the short term at least, the period for the modernization of Islam in the Caucasus, Moscow does not have any good one available.

Because of an unusual combination of circumstances, Chechens could easily make up one-third of young Russian citizens to be drafted this fall, a figure that means non-Russians would easily form more than 50 percent of that draft class and one that is certain to disturb Russian commanders and politicians, according to a Moscow military analyst. In an extensive article in the current issue of “NG-Regiony,” Vladimir Mukhin calls into question official claims that the just-completed spring draft cycle was successfully fulfilled and points to even greater troubles ahead this fall in complecting the Russian Federation’s armed services. It is true, Mukhin says, that the military was able to draft the 133,200 young people in the plan and that 21.5 percent of them had higher educations, double the figure from a year earlier. It reduced the number of evaders to 6700, a quarter the rate one year earlier. But the military was able to do that only by drafting individuals whose health is at the very least questionable.

Human rights groups like the Soldiers’ Mothers committees believe that as many as half of those drafted should not have been because of poor health, and even the General Staff announced this time around that 30 percent of those it was calling to the colors should not have been. But the prospects Moscow faces this fall are even more problematic, Mukhin continued. On the one hand, the services will have to draft 200,000 young people all at once, 180 percent of the number drafted this spring, and on the other, it will have to fill simultaneously two classes who will be leaving service at the same time because of changes in the length of service required. Indeed, Mukhin argued, “such a large influx into the army as is scheduled to occur this fall has not happened before in post-Soviet Russia to their more senior commanders and the media, about whether they will be able to cope.

In this situation, Mukhin says, “it is not excluded that in order to fulfill draft quotas for the Armed Forces of the Russian Federation and other Russian forces, the military commissariats will begin to draft young people from Chechnya,” a step they have not taken in recent times because of the troubles there but which could generate about 70,000 draftees this fall. Because Chechens are “more healthy and accustomed to the military way of life than are young people from other regions,” few of them would be excluded under the new and more relaxed health grounds. And if Moscow does decided to take this step, Mukhin writes, then this fall “every third new draftee could be a Chechen.” Mukhin’s article is not the only one focusing on these problems. “Gazeta” reported that the military’s draft program on “The New Face of the Armed Forces” anticipates retaining the draft until at least 2030, thus eliminating one means commanders might have to maintain Russian dominance in the army.

And an essay carried by Sobkorr.ru discussing the situation argued that the desire of commanders to continue to rely on draftees not only reflects the continuing impact of what it called a Soviet-era mentality but also raised questions about what kind of conflicts Russia’s military in fact needs to be prepared for. Obviously, there are certain steps Moscow could take to address this situation – drafting a higher percentage of ethnic Russians than of others as it has done in the last two draft cycles or reducing the size of the military – but neither of those are attractive militarily or politically and consequently underscore just how many problems the Kremlin now has in filling the ranks.

Russian bloggers have noted that from Lenin on Russian rulers have alternated between bald and hairy rulers. The above cartoon shows the continuation of flip-flops between Putin and Medvedev as they become fodder for worms, co-rulers for life.

NOTE: We apologize to readers who attempted to access this blog over the past two days or so and found it was impossible. The fault lies entirely with Google/Blogger, our host. A week ago, it shut down thousands of blogs which had been improperly identified as "spam" by its logarithms. We luckily avoided the first wave, but got caught in the second after the so-called "fix" was applied. Google/Blogger was notified with dozens of complaints in its forum early Thursday morning, but it took 12 hours to even acknowledge the issue, as you can see here. It then required 24 more hours to fix the problem. As a consequence, we have no alternative but to conclude that we cannot rely on Google/Blogger, and we are moving to Wordpress, where we have a backup blog ready and waiting for just such an occasion. We will continue to post content here for a short time and then we will divert your browsers to our new address automatically. We have two days of content pre-loaded onto this blog which we must publish first and then upload to Wordpress before we can finalize the switchover. Obviously, we are very disappointed by the shockingly unprofessional behavior of Google/Blogger, as are many of our colleagues. Again, we apologize for any inconvenience that has been caused.

NOTE: Our new blog on Wordpress contains content not available here, including our editorial on Russia's outrageous imperialistic invasion of Georgia, an essay by scholar Richard Pipes exposing the fundamental fraud that was Alexandr Solzhenitsyn, a brilliant piece of reporting from the Moscow Times illustrating Russia's worsening class warfare and a book review from the Economist on remembering the horrors of Soviet Russia. Wordpress offers us many benefits, including the ability to divide posts using jump pages, a cleaner, sleeker design and the ability to use both categories and tags for post organization. We expect to be quite safe and happy in our new home once we get all moved in and look forward to seeing you all over there.

As shown in the chart above, as the price of oil has plummeted to a three-month low and Russian "prime minister" Vladimir Putin has issued yet another crazy, unhinged attack on a major Russian business entity (last time oil major YUKOS, this time steel major Mechel) , in the last three weeks the Russian stock market has lost 18% of its total value, matching a drop in the price of oil (from $145 to $120) jot for jot. In the last six weeks, it's down a shocking 25% from record highs around 2,400 on the RTS Index. The market was down 3.7% last Tuesday alone as it shuddered under the impact of falling oil prices.

The Russian stock market is being bled white. Indeed, one has to wonder if Putin isn't somehow intimidated by growth in the market and the creation of wealth beyond his control that it implies, and whether he isn't just as pleased as Stalin was to see a crippled nation groveling at his feet. After all, it's so much more difficult to govern healthy, vigorous, wealthy people.

And yet, crude oil is still selling at stratospheric prices in excess of $100 a barrel, and crude oil is Russia's bread and butter. If Russia had any kind of economic fundamentals, its stock market ought to be charging ahead. It's not, and that's because Russia has no economic fundamentals at all. It's a crude, third-world dictatorship governed by a proud KGB spy, a relic of a failed state with no training or experience in business, economics or social policy (much less democracy). The Russian market tracks the price of oil so precisely because the price of oil is the only thing standing between the price of oil and apocalypse.

In short, if the price of oil were not artificially inflating the Kremlin's economic performance, we could very well be witnessing a major depression in Russia, followed by the fourth major collapse of the Russian state in the past century. The recent spike price in oil is quite simply a disaster for Russia, because it has finally given the West the incentive it needs to aggressively seek out alternative fuels; the Kremlin's rabid hostility to the West combined with the huge price surges has made the world wake up from its stupor and begin to wean itself from oil dependence. As time goes on, Russia's oil stocks will both deplete and marginalize, and the Russian economy will degenerate into anarchy.

How could it be otherwise? By what twisted, neo-Soviet logic do Russians imagine that they can be successfully governed by the KGB? What possible credential or qualifications could Putin have to address complicated economic issues? Isn't it clear that the priorities of a KGB spy are irreconcilable with the prosperity of a modern nation? Isn't it obvious he will simply divert the nation's resources towards oppression and world domination instead of dealing with pressing social issues and creating a vibrant economy, in other words that he'll behave just as Stalin did, with the same results?

What is happening in Russia today is unprecedented in human history. Russians watched a KGB regime ruin their country, butchering millions of Russians, destroying the civilian economy and causing the collapse and dissolution of the USSR. Then, when the dust settled, they blithely turned the reins of power right back over to the KGB.

Below, we report that a Russian judge has recently ruled that not only is sexual harassment of female workers by male superiors legal in Russia, it's to be encouraged. Russia is already one of the most corrupt societies on the face of the earth, as rated by Transparency International and a host of other international experts, and things are getting even worse. We then report on Russia expelling one of its leading investors, on the world-famous anti-Soviet dissident who supported Putin's KGB regime and betrayed his whole life's work, and on the barbaric antics of those who claim to lead but in fact act more like savage children. And that's just one day's news!

Russia is disintegrating before our eyes and, just as has been the case in the past, the people of Russia will not lift a finger to stop it.

As if the world needed any more reasons to stay as far away from Russia as humanly possible, the Teleraph reports that sexual harassment is now perfectly legal in Russia. In fact, the judges are encouraging it!

The unnamed executive, a 22-year-old from St Petersburg, had been hoping to become only the third woman in Russia's history to bring a successful sexual harassment action against a male employer.

She alleged she had been locked out of her office after she refused to have intimate relations with her 47-year-old boss.

"He always demanded that female workers signalled to him with their eyes that they desperately wanted to be laid on the boardroom table as soon as he gave the word," she earlier told the court. "I didn't realise at first that he wasn't speaking metaphorically."

The judge said he threw out the case not through lack of evidence but because the employer had acted gallantly rather than criminally.

"If we had no sexual harassment we would have no children," the judge ruled.

Since Soviet times, sexual harassment in Russia has become an accepted part of life in the office, work place and university lecture room.

According to a recent survey, 100 per cent of female professionals said they had been subjected to sexual harassment by their bosses, 32 per cent said they had had intercourse with them at least once and another seven per cent claimed to have been raped.

Eighty per cent of those who participated in the survey said they did not believe it possible to win promotion without engaging in sexual relations with their male superiors.

Women also report that it is common to be browbeaten into sex during job interviews, while female students regularly complain that university professors trade high marks for sexual favours.

Only two women have won sexual harassment cases since the collapse of the Soviet Union, one in 1993 and the other in 1997.

Human rights activists say that Russian women remain second-class citizens and are subjected to some of the highest levels of domestic abuse in the world.

Last week, at a meeting in Nizhny Novgorod, Prime Minister [Vladimir] Putin came down hard on a company which was damaging Russia’s economy with its work.

It turned out this company was by no means Baikalfinansgrup, which bought Yuganskneftegaz at a non-competitive auction on credit provided by the government. And it wasn’t the Gunvor group, which belongs to a friend of premier Putin and receives 70 billion dollars annual income from the export of Russian oil. And not RosUkrEnergo, whose right to deliver gas to the Ukraine using non-transparent arrangements is whole-heartedly defended by Russian bureaucrats at the highest level.

It turned out to be Mechel, condemned for selling coal abroad at prices two times lower than domestic ones. The company’s owner, Igor Zyuzin, did not appear at at the meeting, citing illness. “Of course, illness is illness,” premier [Putin] said, then recommending a speedy recovery for Mechel’s owner. “Otherwise we’ll have to send him a doctor to clear out all these problems.”

Putin’s promise to send Zyuzin a doctor cost Mr. Zyuzin 5 billion dollars — it was exactly this amount by which Mechel’s market capitalization collapsed that evening on the New York exchange.

The reason why Mechel in particular dissatisfied the premier was such: The largest Russian metallurgical giants, including the Novolipetsky [NLMK] and Magnitogorsky metallurgical complexes, buy up coal on the side, and as a consequence, are interested in long-term contracts for coal delivery during times of sharp price increases.

Mechel, which supplies them with coal, is a coal extracting company, and is accordingly interested in spot contracts for coal delivery, which allow it to maximize sales profit; And, should the opportunity arise, to use the deficit of coal as a lever to gain control over small factories (Gubakha, for instance).

It is clear that giants like NLMK and Magnitka are much closer to the Kremlin, and especially to Vice-Premier Sechin, who now oversees industry. It was precisely Sechin, who, with active participation of the metallurgical giants, prepared the report that has raised so much attention.

It sticks out like a sore thumb that this is already Premier Putin’s second attempt at direct interference in the economy. A week ago, high prices for jet fuel elicited his discontent. If earlier, during his presidency, President Putin underscored in every way that “the Yukos affair” was an exception, then now, it seems Premier Putin is making it clear to everyone that he is intent on directing the economy by hand.

Mechel, which was worth around 15 billion dollars just last week, recently laid out around 2.5 billion dollars for a controlling stake in two large coal companies –Yakutugol and Elgaugol –and in doing so, beat out the state-run ALROSA. Yakutugol has been online for a long while. Elgaugol is simply a section of taiga, and several billon dollars are needed to develop it.

It is obvious that in the near term, it will be hard for a company that paid money for non-operational assets in an open auction to raise the means to develop them. If Mechel goes bankrupt, and its assets are sold for peanuts, Mechel’s shareholders (I’ll remind you that the company had its IPO and lists its shares on the New York Stock Exchange), may well file against Premier Putin in the New York City court.

And if the Yukos shareholders, in filing their corresponding lawsuit, expect to prove that precisely Vladimir Putin or Igor Sechin are guilty for their misfortunes, then everything is available right here. It is hard to imagine George Bush, threatening to “send a doctor” to Bill Gates. One doesn’t speak to businessmen this way in the free world. Crime bosses speak this way to an out of line merchant. Usually, proof of these threats is obtained in a strategic way, wrapping oneself in microphones. Here the threats sounded right on the television.

One question –how much will this affair cost Mechel? Although in my opinion, something else is far more interesting –how much will it cost the Magnitka and Lipetsky [metallurgical plants]. What has happened comes out as the classic illustration of the proverb: don’t call a wolf to help you with the dogs. The metallurgical giants turned to Vice-Premier Sechin, to help him fight with inflation by forcing Mechel into long-term contracts. The general fall of the market has already cost Russia’s steel sector far more than the losses from spot contracts, by which Zyuzin sold coal. After all, zealous bureaucrats will now be checking everyone, not just Mechel. It is always this way with chekists and bandits: if you ask them for a favor, it’s uncertain if they will accommodate it or not. But you’re still certain to owe them.

But the most interesting part –how much will this affair cost Premier Putin? It isn’t a question of whether business will start to speak up in Mechel’s defense –no one has any illusions here. Business will be tearing chunks out of Mechel, and its mouth will be busy. But then Mechel will likely run for protection to President Medvedev, and there aren’t any reasons why President Medvedev wouldn’t provide it with protection. If nothing happens with Mechel, and prices for airline tickets don’t fall, this will mean that Premier Putin can’t regulate the prices of either jet fuel, or coking coal.

And this is very bad, when the premier sends a doctor every week, and the doctor just doesn’t arrive. This way one can quickly tumble down to the level of Premier [Mikhail] Fradkov, who every week would loudly censure [German] Gref, or [Alexei] Kudrin. But for some reason, he could never do anything to them.

Writing on Robert Amsterdam's blog hero journalist Grigori Pasko takes the late Aleksandr Solzhenitsyn to task for his shameful silence on so many issues of his day:

I recall how back when I was in the military-political college, I surreptitiously read «One Day in the Life of Ivan Denisovich», Alexander Solzhenitsyn’s forbidden tale about prisoners of the GULAG, hiding it from the company and battalion officers. At the college, they taught us how to be conduits of the ideals of the communist party in the armed forces. Solzhenitsyn’s story talked about how all around this party there was nothing but lies. And around the Soviet state – lies. I learned how to see these lies thanks, among others, to the works of Alexander Isaevich.Then I experienced on myself all the «charms» of the Russian GULAG. One of those who allowed and allows the continuation of the existence of the GULAG – was and remains Vladimir Putin. All the stranger then was to me the almost friendly, problem-free and conflict-free, with only rare and insignificant criticism, relationship between the great writer and the not-great chekist and president.

Once I came to visit Alexander Isaevich. I wanted to speak with him about his attitude towards the spy-mania which had blossomed into full bloom in our country under Putin. The author’s wife, Natalia Dmitrievna, met me and said that Alexander Isaevich would not be able to meet with me. I asked her about his attitude towards the spy trials. She did not reply. And nowhere and not once did I hear the voice of the author speak out against these trials. I don’t know why he kept silent.

I express my deep sympathy to Natalia Dmitrievna. And for some reason I think that she will tell us about how Alexander Isaevich reacted to these or the other events in the country, while not making this reaction public.

In one of the last interviews for the television channel «Rossiya», Alexander Solzhenitsyn said that he considers that Russia has in many ways re-established its influence on the international arena, however its domestic spiritual-moral atmosphere is far from the ideal.

“In international relations, the influence of Russia is returned, the place of Russia in the world is returned. But internally, in our moral state, we are far from what one would like to be, as we organically need”, said Solzhenitsyn.

Probably, Alexander Isaevich was found under the impression of the Munich speech of Vladimir Putin – a speech aggressive in intonation, but nearly empty in content. By this speech the president, in essence, once again unleashed the cold war between Russia and the West. I will dare assert that the real authority of my country in the world, thanks to such figures as Putin, is very low. Western leaders hush up the problems in my country and exaggerate the role of Russia only because their countries need Russian oil and gas.

Surely Solzhenitsyn must have seen and known all this. But if he did see and know, then why did he keep silent?

Answering a question of the television channel as to whether he continues as before to consider “preservation of the people” to be the sole national idea acceptable today, Solzhenitsyn underscored that this is “not so much as the sole, as an accessible” idea.

In his opinion, society has not yet arrived at a long-term national idea. “When they started getting all worked up by a national idea, it was nauseating. Where are you going, why are you going there. You haven’t matured enough for it”, said Solzhenitsyn.

It is possible that the hysteria with respect to the search for a «national idea» stopped in the country thanks to Alexander Isaevich. Because some had already reached agreement to the point where the FSB – this is the intellectual heritage of the Russian people and its neo-nobility.

These «neo-nobles» could easily have reached agreement to the point where the «national idea» of the country would have become Khrushchev’s phrase «We’ll show ’em all!» Personally, I don’t think there’s anything much to show ’em. Besides oil and gas, naturally.

It is known that the writer continued working on the preparation for publication of 30 volumes of his works. Even «The GULAG Archipelago», which has not been republished in the last 16 years, recently came out in a new edition. The book is necessary and important even now, when the former GULAG once again is making its presence felt.

It is noteworthy that the writer also did not once express himself about the state of today’s penitentiary system of Russia, which is little better than the former GULAG, the presence in it of political prisoners and KGB methods. Why? Perhaps we may still find out about this later…

Bill Browder calls himself a value investor - it is fund manager-speak for someone who looks for latent value in stocks that are ignored, hidden gems - but value investment barely begins to describe what he does.

In common with other money managers, the chief executive of Hermitage Capital has a PowerPoint presentation that sets out his strategy, but if you know anything about Bill Browder, the rehearsed explanation is strangely unsatisfying; you wonder if you are getting the whole story.

All fund managers, barring those who follow indices and the weird ones who predict the future from lines on charts, call themselves value investors, but the Hermitage chief does something altogether different - he pursues value with a vengeance.

This is not about taking a stake in a dull family engineering company with a view to prodding the management out of slumber.

On the basis of past performance, Mr Browder's strategy is to target a leading company with close connections to government and to conduct a forensic examination of its investments.

Upon discovering fraud and embezzlement, a very public campaign of exposure and denunciation ensues, followed by partial recovery of funds and huge stock price appreciation. It finally ends with Mr Browder being chased out of Russia.

Hermitage Capital's campaign against fraud at Gazprom made enormous amounts of money for investors, including many who never put their money in Mr Browder's fund.

He started with $25 million in 1996, achieving almost tenfold gains in 18 months and then raised $1billion from new investors. At one stage the pot totalled $4 billion and Hermitage became Russia's biggest foreign portfolio investor.

However, Mr Browder offended someone with great power - he insists that he still does not know who - and in November 2005 was refused re-entry into Russia. He has not returned since.

Hermitage is shifting its focus to the Middle East, in particular the Gulf, where Mr Browder is investing the proceeds of a new fund. He raised $625 million in April last year and is targeting infrastructure companies in Kuwait and the United Arab Emirates.

His portfolio includes 15 investments at present after a lengthy selection process from a thousand companies worldwide. He reckons that the Gulf investment climate is a holiday compared with Russia. “Corporate governance is so much better [in the Gulf]. In Russia it was all about fraud. We have never seen anything like that in the Middle East.”

The parallels between Mr Browder's Russian exit and the present rumpus at TNK-BP (the Russian affiliate of BP, where a power struggle has resulted in BP's nominated chief executive running the company from somewhere in Central Europe) are obvious.

“If my experience is anything to go by, BP's problems are only just beginning ... They [BP] should fight back, use everything they have. It's the only thing that these people understand.”

He ought to know. Although the visa denial put paid to his Russian strategy, it was trivial compared with what happened next.

In June 2007, while the Hermitage boss languished in London, a lieutenant-colonel in the tax unit of the Interior Ministry became aware of Mr Browder's predicament.

Under the guise of a tax inquiry, his team raided the Moscow offices of Hermitage and its law firm, seizing documents, computer discs and corporate seals, in the process beating up a Russian lawyer who dared to protest.

Over the next six months there followed an elaborate fraud in which the ownership of several Hermitage companies was changed and new directors appointed.

A lawsuit was fabricated against the Hermitage companies, the bogus directors accepted the claim and “judgment” was awarded for $376 million.

Mr Browder has PowerPoint presentations that explain the fraud in minute detail and you almost sense that he enjoys pursuing the gangsters through the shadowy corridors of the Kremlin.

“Isn't it amazing?” he says. It gets more amazing because the crooks failed to get the money - the Gaz-prom stock held by the companies had been transferred offshore.

Undeterred, the “police” then pursued another avenue. Having bankrupted the Hermitage companies with bogus lawsuits, they then demanded repayment from the Government of taxes legitimately paid by Hermitage, a total of $230 million, to the Russian Treasury. This was duly repaid to the crooks - a tax fraud perpetrated by tax inspectors.

Why does the Hermitage chief do it? “I went to Moscow hoping to find cheap stocks.” He was at the time a fan of Vladimir Putin, supporting the President's programme of reform.

His first confrontation was with Vladimir Potanin, a Russian oil and metals tycoon, over shares in Sidanco, an oil company later acquired by BP. Hermitage bought 2 per cent, but the tycoon wanted to assert control.

“He decided to issue shares to a group of insiders, including himself. I had to go into battle to prevent it being diluted.”

He cuts an unlikely figure as a caped crusader for corporate governance in this cloak-and-dagger world of post-Soviet corporate gangsterism but talks about “the good guys” and “the bad guys” in a way that brushes aside the amorality of Moscow business deals.

His grandfather was Earl Browder, one of the founders of the American Communist Party, who went to Russia in 1927 and became the party's general secretary.

During the Second World War he was expelled for arguing in favour of co-existence with capitalism and during the 1950s communist witch-hunts he was interrogated by Senator Joe McCarthy but refused to incriminate his former comrades.

The younger Browder says that he has taken on the role of family black sheep, embracing capitalism and rejecting academia, the profession of his father, who is a respected mathematician.

The black sheep initially worked for Boston Consulting Group and got a taste for investing when he was sent to Poland to sort out a failing bus factory.

The Polish Government was privatising state companies by public flotation. “I took all my savings, $4,000, and applied for all the privatisations and made ten times my money.” He joined Salomon Brothers and traded Eastern European equities. In 1995 he quit to set up Hermitage.

The rebel has a suitably apocalyptic view of the financial world. The credit crisis has a long way to go, he reckons. “There is going to be huge attrition in the world of investment. We have been in a 20-year bull market.”

The fashionable emerging markets will continue to be hit hard. “The Chinese stock market was trading at 50 times earnings. As the bubble bursts in China, there will be a knock-on effect, it will be the de-Bric-ing of the world,” he says, referring to the acronym of Brazil, Russia, India, China that has became a buzz-word for emerging market dynamism.

The Hermitage boss has his own slogan: “Get off the financial grid.” By this, he means the world of financial markets, places where capital is consumed, rather than generated. “You don't want to be in places where capital markets are active.

If you can't borrow money, who will do badly? Those who need to borrow money.” That logic drives Mr Browder to the Middle East, where capital is in huge surplus and there is cultural disapproval of lending for interest.

Local Middle Eastern companies have yet to excite the investment banks, he says, and money is flowing into Middle Eastern coffers. The income of the big oil exporters totals $1.3 trillion at an oil price of $100 per barrel - and it is staying in the Gulf.

“It's the biggest wealth transfer that has ever happened in the world,” he says.

Hermitage has 18 analysts, mainly Russian, because they are “some of the smartest people in the world trained in the one of the worst business environments”. He quotes Frank Sinatra's song about New York: if you can make it there, you'll make it anywhere.

But he has adopted Britain as his home. He acquired British nationality when he married and is a huge fan, recalling the support he received from the British Government when was trying to regain his Russian visa. “This is a good country. I like the rule of law.”

Thursday, August 07, 2008

Writing in the Moscow Times Andrei Kortunov, president of the New Eurasia Foundation in Moscow, says that Russian dictator Vladimir Putin is a classic crybaby. Just as in Soviet times, Russia is being governed by a barbaric hoard of little boys who cannot engage in civilized argument but can only lash out with crude violence whenever anyone dares question them. In other words, an army of little Stalins.

A person who constantly takes offense at others often shows his own immaturity. Similarly, children, teenagers and emotionally unstable people are most often the ones who are easily offended.

In politics, the habit of taking offense is out of place, as is the display of emotion generally. This simple truth has been known since the time of Machiavelli.

Nevertheless, many statements by Russian leaders -- starting with former President Vladimir Putin's famous Munich speech in February last year -- leave the impression that the Kremlin is deeply offended by the United States. This is not only displeasure with certain decisions and statements made by the White House, but it is a feeling of being offended on a highly emotional level.

The most recent example was a statement made last week at a news briefing by a senior Foreign Ministry official. "In the long run, we can afford not having any relations with some of our partners," the official said, speaking on the condition of anonymity. To some extent, statements such as "Don't try to tell us whom we can sleep with," which the official also said at the briefing, can be written off as a recent idiosyncracy of the nation's leaders, who think that the brashness and street jargon in official statements, made popular by Putin, is now fashionable. More important, however, is the larger, underlying message -- that Moscow is eagerly waiting for the time when it is free to go its own way without having to deal with the United States.

In Russia's case, susceptibility to offense seems to go hand in hand with the tendency to take pleasure in others' misfortunes. Russia makes no effort to hide its glee over the problems that the United States is currently facing, and it likes to make ominous predictions about how the "full-blown crisis" in the United States represents a threat to its continued existence. Curiously, these declarations coincided with the appointment of former Deputy Foreign Minister Sergei Kislyak as the new ambassador to the United States. These two events could be interpreted as a kind of mandate to curtail cooperation in those fields where it still existed.

I do not intend to defend the foreign policy of U.S. President George W. Bush. His eight years of leadership were marked by many tragic mistakes that added new problems to the old ones and that greatly diminished worldwide trust in the United States, while creating a deep split within that country over basic questions of foreign policy strategy.

The current Bush administration bears a significant part of the responsibility for the deterioration of relations with Russia. The U.S. leadership can be compared to a patient who is temperamental, grumbles, doesn't want to take his bitter medicine, and at the same time insists that he is perfectly healthy.

Is it worth it to get offended by a sick person? Is it wise to incorporate that offense into official government policy? And should we express joy over the patient's worsening condition? Such childish emotions are especially out of place if Russia has any desire to become a responsible leader in global relations.

First, taking offense is not constructive. It is unclear at whom the Foreign Ministry's grievances were directed. At Bush? If so, then this is strange as Bush has truly become a lame duck.

Were the statements directed at Senators Barack Obama and John McCain? That would be premature at the very least and ineffective at most, since it is impossible to paint such different politicians with the same brush.

Did the Foreign Ministry target the U.S. public at large? Anybody who pays attention to the political life of the United States knows that Russia is not currently a major concern for the average citizen there.

Second, taking offense is not always logical. Russia's current position suffers from inconsistencies. On one hand, Moscow claims that the United States is in the midst of deep economic, financial, political and moral crises and that the government itself is practically on the verge of collapse. On the other hand, the United States is portrayed as some kind of demonic power, intent on imposing its own order on the rest of the world and undermining Russia's strategic interests. This is all very reminiscent of self-contradictory Soviet propaganda during the Cold War.

Third, the weakness for being offended can lead to rash behavior. The desire to strike back at the offending party, to settle accounts for the perceived humiliation or insult often overshadows one's long-term interests. For example, Russia's glee over U.S. economic and financial woes is absurd considering the Russia's direct interest in U.S. economic success. For example, a significant part of the country's stabilization fund is invested in the United States; and global oil prices rise or fall in large part as a result of the health of the U.S. economy.

In addition, Russia has a direct interest in seeing that certain U.S. foreign policy goals are successful. For example, Russia's position in Central Asia and the Middle East would be weakened if the United States withdrew its troops quickly from Afghanistan and Iraq.

Last, if Russia's dream ever came true -- the collapse of the U.S. political and economic system -- it would be difficult to underestimate the amount of damage that everyone on the planet would suffer.

The art of foreign policy should not be defined as slamming the door in the face of an irritating or inconvenient partner, but in the ability to further one's interests even under difficult conditions. Refusing to negotiate with the United States would be our collective defeat and a recognition of our powerlessness and irresponsible attitude in the face of urgent global problems.

A serious discussion is now gathering steam in the United States about that country's future foreign policy, Washington's role and weight in international affairs and the new world order after the global balance of power has shifted.

The coming months and years will determine a lot -- perhaps even the course for decades to come. Many U.S. neoconservatives who are still stuck in Cold War mentality have a habit of dividing the world into good and evil, of viewing it through the prism of the standoff between Moscow and Washington and of refusing to give way on any of their positions. By provoking the United States with inflammatory statements, do we really want to give these anti-Russia hawks a big career boost?

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PUTIN MUST FREE THE NEMTSOV WHITE PAPER!

That craven coward Vladimir Putin is censoring the brilliant, courageous and patriotic research of former Deputy Prime Minister Boris Nemtsov reviewing Putin's record in office. We demand this outrage cease immediately. Read the paper in English PDF here. The HTML version (can be cut and pasted) is here.

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Tell all the truth but tell it slant,Success in circuit lies:Too bright for our infirm delightThe truth's superb surprise.

As lightning to the children easedWith explanation kind,The truth must dazzle graduallyOr every man be blind.

-- Emily Dickinson

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From childhood's hour I have not beenAs others were, I have not seenAs others saw, I could not bringMy passions from the common spring.From the same source I have not takenMy sorrow, I could not awakenMy heart to joy at the same tone,And all I loved, I loved alone.Then in my childhood, in the dawnOf a most stormy life was drawnFrom every depth of good and illThe mystery which binds me still:From the torrent, and the fountain,From the red cliff of the mountain,From the sun that 'round me rolledIn its autumn tint of gold;From the lightning in the sky,As it passed me, flying by,From the thunder, and the storm,And the cloud that took the form(When the rest of Heaven was blue)Of a demon in my view.

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Girl Power: Ginger Rogers could do everything Fred Astaire could do . . . backwards, and in high heels.

Pioneer Power: Though he painted more than 1,000 works of art in his lifetime, Vincent Van Gogh sold only two.

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Socrates: "To be is to do." Sartre: "To do is to be." Sinatra: "Do be do be do."

Girl Power: On May 14, 2006, a perfect game was pitched in the Oakfield, New York Little League. Perfect as in 18 consecutive strikeouts. The pitcher's name? Katie Brownell. She's the only female player in the league.

Girl Power: On April 13, 2007, the Independent reported that women will soon be able to produce sperm cells from their bone marrow, making men obsolete.